This is our Corporation Tax guide, which covers the basics on Corporation Tax (CT).
Under the UK tax system individuals pay Income Tax, whilst companies pay Corporation Tax.
UK limited companies pay CT on their profit to HM Revenue & Customs (HMRC) every 12 months.
HMRC will issue a notice to deliver a company tax return each year.
Therefore, when you are a director who is running your own company, every year you will need to ensure that your business will:
- File a company Tax return and full annual accounts for the company financial year with HMRC. The company tax return is called form CT600.
- Pay Corporation Tax due to HMRC, by the Corporation Tax deadline.
- File your accounts with Companies House. The accounts that you file with Companies House are a reduced version from the full set of annual accounts. This is because Companies House require less information and, as a result, not all of the information from the company’s full accounts is shown on public record.
In today’s world, most companies opt to pay Corporation Tax online. You can still pay at the Post Office or Bank counter however it is much quicker to pay online either via the HMRC website or through your company’s own internet banking.
A company will work out its tax bill by subtracting all allowable business expenses from business income, to arrive at profit in the company accounts. Certain expenses (such as entertaining, penalties, fines etc) will need to be added back on to the profit in the company tax workings to arrive at revised profit, as these expenses are not tax-deductible. The appropriate tax rate is then applied to the revised profit to work out your company’s tax bill.
All companies need to deliver a company tax return to HMRC and pay Corporation Tax on their profits, regardless of their size or, indeed, their level of profits.
Receiving your CT reference and initial thoughts
Nowadays, when you register a new company with Companies House, they will inform HM Revenue & Customs (HMRC) of your company’s existence. HMRC will then send your CT reference through the post to your company’s registered office.
The Corporation Tax reference has an initial three digits and these relate to the CT office. The office is in the area in the UK, that looks after your company. There are a further two sets of five digits that make up the company’s actual UTR (Unique Tax Reference). The UTR will show on:
- the CT600 form that needs filing with HMRC each year
- all correspondence from HMRC
- your company’s CT service within your online account with them. As part of your company set up, it is recommended to set up a Business Tax account with HMRC. As part of this, you can add the Corporation Tax service. This will then allow you to track liabilities and payments in the future.
We have also, for the ease of reference, written about limited company taxes and the filing dates of official documents and tax payments. We have also detailed what you should consider, if you are looking to change your contractor accountant.
Pay Corporation Tax -current rates & fiscal years
The annual calendar year ends on 31 December whereas the company tax year in the UK end on 31 March.
The current rate of Corporation Tax is 19% and in the company tax-years ended 31 March 2022 and 2023, all companies will pay Corporation Tax at this rate on their taxable profits. In previous years gone by, large companies paid a higher rate of CT than smaller companies. 1 April 2015 was the date that HMRC lined up the rates for both small and large companies.
Please note, following the March 2021 Budget, the Chancellor confirmed an increase in the CT rate. This comes as a change, after all companies having had the same CT rate for a number of years. Therefore, from 1 April 2023, the 19% rate will increase to 25% on profits above £50,000, with marginal relief for profits of up to £250,000.
This means that a company with profits:
- up to £50,000 -will pay Corporation Tax at 19%
- between £50,000 and £250,000 -will pay 19% on the first £50,000 and 25% on the remainder
- profits above £250,000 -will pay 25% on all of the profits.
The company tax year or `fiscal year’ runs from 1 April to 31 March. The personal tax year runs from 6 April to 5 April.
Finally, the `fiscal year’ may be different from your company’s accounting year. If it is and the CT rates have changed following a budget, you will apportion your profits accordingly. This means that the profits will be apportioned between the actual company tax years. As a result, the profits will then be taxable in the company tax return, partially at different rates.
In this Corporation Tax guide, we now look at the company year-end for your small business. On the day that your company is set up, the year-end will automatically default to the end of the month in the following calendar year. Therefore, if your business was incorporated on 26 June 2022, the year-end would default to 30 June 2023.
In the above example, you may prefer to have a different company year-end for your business. If this is the case, you or your accountant can submit a form to Companies House requesting this change.
It is also possible to change your business year-end in the future too. You can, however, only `extend’ your accounting period once every five years.
In contrast, shortening your business year-end has no restrictions.
Calculating your company’s profits that are subject to CT
Every accounts-year, you will need to work out your company’s profits that are subject to Corporation Tax, and report these on form CT600. Your accountant will add up all of the business income. They will then deduct from this the sum of any business expenses, including salaries. In the company tax workings, they will add back on to the profit, any dis-allowable expenses (depreciation, entertaining costs, penalties or fines). They will also deduct from the profit any income that is not taxable. Finally, they will then deduct any capital allowances and any other tax reliefs.
If the business year spans the `fiscal year’ (see above), and the rate has changed, you will apportion your profits over the appropriate number of days. You can then work out the tax at the applicable rates accordingly and arrange to pay Corporation Tax online.
Expanding on the above, let us assume your company year-end ends on 30 June. The accounts covering the year to 30 June 2023 will have:
- 274 days’ (1 July 2022 to 31 March 2023) profits taxed at 19%.
- It will also have 91 days’ (1 April 2023 to 30 June 2023) profits taxed at either:
- all at 19% or
- part at 19% and part at 25% or
- all at 25% (see above)
To reiterate, if the profits are no more than £50,000, the tax rate will be 19%.
The Corporation Tax Return and CT payments and periods
The CT600 form filing deadline is 12 months after the end of your business year-end. Therefore, if your company’s year-end ended on 30 June 2023, the Corporation Tax deadline with HMRC would be 30 June 2024.
The due date to pay Corporation Tax online is nine months and one day after the end of an accounting period. Therefore, if your year-end ended on 30 June 2023, the due date for payment of the CT to HMRC would be 1 April 2024.
A company can pay CT in several ways, but paying via cheque through the post is no longer available. Most contractors now pay their CT by internet banking.
Company accounting tax periods can only cover a maximum of twelve months in length. When your company is set up it could have a period longer than twelve months. If you extend your company year-end at some future point, the period could also be longer than twelve months. In this case, the company would need to file two CT600 forms. The first return would be for the first twelve months of your accounting period, and the second return would be for the remaining days up to the business year-end.
In the above example, if your company commenced trading on the actual day that it was incorporated, which was 26 June 2022, it would complete two company tax returns covering:
- The twelve months to 25 June 2023
- The period from 26 June 2023 to 30 June 2023
Corporation Tax penalties
In this Corporation Tax guide, we now look at CT penalties. When you file your company’s CT return, the due date is twelve months after your company year-end.
If the company misses the Corporation Tax deadline, the following fines apply:
- One day late: £100 penalty
- Three months late: A further £100 penalty (£200 in total)
- Six months late: 10% of the unpaid amount
- Twelve months late: A further 10% of any unpaid tax (20% in total)
When a company makes a trading loss, it can either:
- carry back the loss against profit for the previous twelve months; or
- carry the loss forward against future profits.
A loss can be carried forwards indefinitely to be set against any future profits.
When a company is closing down, it can claim `terminal loss relief.’ This means It can carry back any losses against profits in the three preceding years before the final accounting period.
This Corporation Tax guide takes a look at most of the areas that may affect your small business in terms of CT. Your contractor accountant will normally handle the preparation of and file a form CT600 for your company whilst you can arrange to pay your company’s tax liability.
The process, in terms of completing a Corporation Tax return, is not always straightforward. It can even be more complex if tax rates or capital allowances have changed. In addition, the actual process of filing to satisfy HMRC requirements is not straightforward, either. They now require certain `tagging’ for the figures in the accounts and accountants use specialist software to do this. If you have a good accountant to look after you, they will take care of this.
Link to Contractor Advice UK group on